Archive | Newmarket Property Trust

Asset backing started at 96.4c, finishes at 57.5c

Newmarket Property Trust started out in 1995 as a subsidised bond issue backed by investment & development properties and has ended its time as a loss-making semi-detached unit still not clear on direction.

FAI Metlife took the Rialto, adjoining Newmarket Broadway office block, Rialto carpark on Teed/Kent Sts and the George Court building on Karangahape Rd to the market in 1995 in a $66 million float ($22 million to be retained by FAI Metlife), backed by a $67 million portfolio.

Net asset backing then was put at 96.4c.

Total assets are about where they were to start with, at a tad under $70 million, but net assets are down to just under $40 million, for backing of 57.5c/unit.

The units have been trading around 50c, a modest 13% discount.

In its last annual result before being absorbed into the affairs of the National Property Trust, Newmarket reported a $3.47 million deficit after tax & $6.64 million of negative revaluations for the June year.

Before realisations & revaluations, the net surplus fell from $4.44 million to $4.07 million on revenue down $75,000 to $8.82 million.

Direct costs increased by $297,000, including restructuring costs of $462,000 related to the takeover offer from National and the aborted offer from the Symphony Group.

The Rialto on Broadway, Carlton DFK Centre and the AA Centre fell in value, partly offset by a $190,000 revaluation gain on the George Court sign and a $772,000 gain on the sale of the Rialto Carpark, which was sold for $7.25 million in June.

The trust is seeking refunds from Inland Revenue for overpaid tax for the 1994-99 financial periods totalling $1.2 million. This money was previously treated as current assets but has been reclassified as contingent assets.

Newmarket has paid gross distributions of 7.65c/unit. For 2002. (6.57c/unit in 2001), including a special 1.5c/unit in August, but will not pay a final dividend.

The National Property Trust’s management company now controls about 87% of Newmarket, which is down to 120 unitholders.

AA Centre value chopped 13%, Broadway holds own

Newmarket Property Trust’s bottom line fell 79% to $1.584 million in the year to June, courtesy of a 13% downward revaluation of the AA Centre in Auckland.

Over the whole portfolio, the devaluation came to only 3.6% because the trust’s three Newmarket properties all held their values.

The retail Rialto Heart of Broadway, On Broadway (Westpac Tower offices) and Rialto carpark maintained their value at last year’s $60.4 million, which managing director David Keys said was especially heartening as the FAI Metlife rental guarantee has expired.

The Newmarket trust bought all but two of the office floors of the AA Centre, on the corner of Albert and Victoria Sts, in March 1999 after the merger between Newmarket and the Dunedin-based National Property Trust was ambushed, and National could no longer proceed with the transaction.

The Automobile Association retained the top two floors and ground-floor shop. As part of the merger, the rest of the building had a $21.1 million price tag. Leases entered into during the due diligence process raised the valuation to $25 million.

But Linz (Land Information NZ) quits its lease on 3½ floors next April, although Mr Keys said some of its subtenants may want to stay on their own new leases, and the valuation dropped back to $21.75 million.

The question: How easy (or expensive) is it to lease?

“The valuer made a series of assumptions on incentives, costs of leasing up. It’s those things that have really driven the valuation down,” Mr Keys said.

A valuer himself, Mr Keys took issue today with those assumptions, because of the trust’s success in leasing Rialto on Broadway without incurring high leasing costs. An outcome of the conservative evaluation is a degree of over-renting, but Mr Keys said if the leasing programme works out better than the valuers expect, “the value of the building may rebound.”

It’s not an easy subject to have a straight argument over. Like the AMP NZ Office Trust’s Rob Lang (crowing over a 5% cut in portfolio valuation), Mr Keys has been dealing with new leases or renewals where the remaining term or a sublease may become part of the equation in structuring a new lease.

Landlords in that case can argue they have made a gain by winning a longer new lease term, while giving away something in the process. Mr Keys cited one tenant, with a year to run on its lease and paying 15-20% over market. The parties are negotiating a deal for a new six-year lease based on today’s rent and incentive market and taking into account the remaining over-rented period.

The single-floor tenant could get a cheque for up to $80,000, while the trust would have the benefit of a reasonably long lease without having to go out into the market.

Yield and rent guarantees expire

An unusual feature of the Newmarket trust since its inception in 1994 has been the existence of yield and rental guarantees by FAI Metlife, both of which expired at 30 June 2000. The yield guarantee maintained a pretax return to investors of 9.5% on the original $1 unit price, or about 19% for much of the time since then.

Mr Keys said the rental guarantee was adding about $1 million to the value of the Newmarket properties a year ago. “We’ve held value notwithstanding the rental guarantee has expired. Compared with what’s happening with most of the other listed property companies, that’s pretty good.”

Rialto’s sales rose 11.3% to $28.4 million and the fashion retailers in particular were performing well, Mr Keys said. Village Rialto Cinemas has just renewed its lease for six years and nine rent reviews have been settled in the past six months, producing average increases of a fraction under 8% over the two-year rent review period.

The Broadway office block has six new tenants , with strong demand from financial and professional services, and casual parking revenue has doubled since the carpark was upgraded, rebranded and Wilson Parking was appointed to manage it.

The trust’s third major activity for the year has been to buy back its units — 4.9 million of them, or 6.8% of the units on issue. “The dividend saving from cancelled units is much greater than the cost of the additional borrowing to fund the buyback,” Mr Keys said.

With a strong enough balance sheet, the trust would like to acquire retail property, which chairman Jock Irvine said was “still far and away the best property sector. {But] we will only consider acquisitions which to unitholder yield and asset value.”

The dividend yield guarantee, in place for the last time, kept the gross dividend to 9.5c, compared to about 6.45c if it hadn’t been in place. At the current unit price of 52c, that would represent a yield of about 12.4%.

Report on strategic options end of April

Newmarket Property Trust’s net surplus after tax fell 5.5% to $1.9 million in the December half on total rent down 5.4% to 4.29 million, and expenses down 4.9%. The trust announced a 3.313c/unit interim dividend, representing a 12.5% annualised return on an average 50c unit market price.

Earnings/unit fell from 2.99c to 2.82c.

“This dividend is slightly below where we expected to be, but market uncertainties slightly delayed our leasing
programme and cash flows,” managing director David Keys said.

New retailer for Country Road space

The trust has leased the 2-level Rialto space to be vacated by Country Road to Ultimo Emporium, “a new high-quality, mini-department store, which will open with their spring/summer release in early September. They have a range of top-quality international brands committed to supply and back the proposal. Country Road will stay on at Rialto until 1 August.

“This is an ideal use, complementary to our leading-edge fashion operators such as Road to Rome, Bendon, Satori, Canterbury & Southern Exchange. We are confident that Rialto Heart of Broadway will remain the fashion centre of Newmarket.”

Mr Keys said the trust had renewed 11 retail leases, entered into 4 new leases, agreed 7 rent reviews & approved a sublease from ANZ Bank, which would see Australian fashion retailer Portmans at Rialto.

“People, including our competitors, have been saying that the northern end of Newmarket is dead and all the action will be at the southern end. We do not agree and have been very focussed on securing our niche as Newmarket’s leading edge fashion centre. The achievements listed above take our weighted average lease term from 2.27 years to 3.91 years.

“We are also working on some ideas to link in with New Zealand’s fantastic fashion designers, many of whom were on show at the L’Oreal Fashion Week in October last year.”

The trust is negotiating a lease renewal for a major AA Centre tenant which Mr Keys said might also achieve commitment for another floor. “There has been a good inquiry level regarding available space in the AA Centre. On the basis of these inquiries we are hopeful that we can achieve full occupancy by the end of the year.”

Mr Keys said the board & management had been reviewing future strategic options for the trust and had undertaken to report back to unitholders by the end of April.

6-for-10 offer prices Newmarket at 57c

The National Property Trust launched a 6-for-10 bid today for the Newmarket Property Trust, on the proviso that it also gains control of Newmarket’s management company.

Symphony Group Ltd, headed by Chris Minty & former Chase Corp executive chairman Colin Reynolds, has already made a bid for the management company, controlled by Sovereign Ltd, and has acquired 19.9% of the listed trust’s units from Sovereign in a price range of 43-51.6c.

National gave notice under the stock exchange’s listing rules notice & pause provisions that it intends to make a full takeover offer. Tuesday’s closing price of 95c for National equates to 57c/unit for Newmarket, whose units closed up 3c at 51c.

Conditions include 50% acceptance, exemption from the requirement to issue a prospectus, purchase of all shares in Newmarket Property Management Ltd.

National said it would have to issue 40.6 million units for a full takeover. Metropolitan Life Assurance Co of NZ Ltd (now part of Sovereign/ASB/Commonwealth Bank of Australia) has 38.01% of Newmarket and would hold 16.25% of National.

National said it would deliver its takeover notice on Monday 20 May, post offers to Newmarket unitholders on Tuesday 4 June and take acceptances until Friday 5 July.

When National tried to merge with Newmarket in 1999, National had a $55 million portfolio and Newmarket $61 million. Newmarket went to $82 million when it acquired the AA Centre in Auckland, which was to have been an acquisition for the new enlarged trust.

Now National has 11 properties worth $144 million while Newmarket has $80 million of property. That would rise to about $140 million if Newmarket bought the 2 buildings Symphony wants to sell it, the AGC building at Viaduct Harbour and Ericsson House on Carlton Gore Rd.

Offer to unitholders 10 June

National Property Trust has set back by a week its indicative timetable for the takeover offer for Newmarket Property Trust.

Actual timing will depend on whether the Securities Commission grants National an exemption from issuing a prospectus.

Subject to that, National wants to deliver its notice of takeover intention to Newmarket next Monday, 27 May, send its offer to unitholders on Monday 10 June and close the offer on Friday 12 July.

National’s 6-for-10 bid prices Newmarket at 57c/unit.

Previous story: National bids for Newmarket trust again

Update 30 July 2002: National Property Trust unitholders voted today to support the trust’s takeover offer for the Newmarket Property Trust. National’s executive chairman, Paul Dallimore, said the vote made the offer unconditional. The offer closes on Friday 9 August. The other condition, to get acceptance representing more than 50% of Newmarket’s units, has already been met.

Update 22 July 2002: Sovereign Ltd has formally accepted the National Property Trust’s offer for its 38% stake in Newmarket Property Trust.

Grant Samuel says offer fair

Newmarket Property Trust’s independent directors have written to unitholders recommending they accept National Property Trust’s takeover offer.

Neville Darrow, deputy chairman of Newmarket Property Management Ltd & chairman of the committee of independent directors, said Grant Samuel Ltd concluded in its independent report that the offer was fair.

“In addition, the committee sought advice from investment bankers Clavell Capital Ltd, including the likelihood of other restructuring proposals or offers being received. Clavell Capital has advised that on the
basis of their inquiries no other proposals are likely to be received.”

The independent directors’ letter will be posted to unitholders this week along with the Grant Samuel report and a formal response to the takeover.

National launched a 6-for-10 bid in May, on the proviso that it also gains control of the Newmarket management company. The bid equated to 57c/unit for Newmarket, at National’s price of 95c, compared to Newmarket’s 51c on the offer day. Newmarket were at 50c today and National at 93c, equating to 55.8c for Newmarket, but with the addition of an early dividend.

The 2 trusts have agreed Newmarket should pay its unitholders a 1.5c/unit special dividend, including imputation credits, record date 26 July & payable 2 August.

Newmarket unitholders who accept the offer before 23 August will also get a dividend from National for the 31 May quarter. These 2 payments will equate to the final year-end dividend which Newmarket would most likely have paid its unitholders had the National offer not emerged.

2 more steps remain: National unitholders must approve the takeover offer by a 50% majority at a meeting in the Centra hotel, Christchurch, on Tuesday 30 July at 4pm, and more than 50% of Newmarket unitholders must accept the National offer, which closes on 9 August.

“Having regard to the Grant Samuel report, the arguably constrained & limited future for Newmarket as a stand-alone entity, and the advice from Clavell Capital, the committee of independent directors is of the opinion that the National offer is in the best overall interests of Newmarket unitholders,” Mr Darrow said.

Carpark sold for profit, and Keys confident on leasing

Newmarket Property Trust managing director David Keys made announcements about six issues today — the yield on the units, conditional sale of the Rialto carpark, plans for Rialto Heart of Broadway, leasing of the Grant Thornton Centre, prospects for leasing the AA Centre, and the trust’s future as a part of the Commonwealth Bank of Australia group.

On the last of these points, his comment was more a no-comment, but it remains an issue.

The yield on the units would be 6.5c/unit, which makes a 13% yield on the unit price of around 50c. Based on year-end valuations, the trust’s net tangible asset backing should be about 70c, putting the units on a 29% discount.

$1 million profit on carpark

Mr Keys said the trust had entered into a conditional agreement to sell the Rialto carpark for $7 million, $1 million above the book value set a year ago. The trust has reserved access to parking spaces to satisfy resource consent requirements and has preserved the ability to offer its retail customers two hours’ free parking with receipt validation.

The trust would use the money to upgrade and secure tenants for the AA Centre and to redecorate and re-image the Rialto Heart of Broadway.

Mr Keys said it was time to review the merchandise mix in the Broadway retail and cinema complex, which was seven years old — not least because Country Road is heading back to 277 when its lease expires next April.

“Obviously when they first told us we were a bit disappointed because ironically they came to us from 277. They’ve been trading reasonably.

“But we’re really quite excited now. It’s amazing how many categories of tenant and individual tenants are out there wanting to be in Newmarket. Newmarket has received approaches from, and is in dialogue with, a number of major retailers who are keen to be on this key location on the Broadway strip.”

Leading edge of fashion a possibility

The two-storey Country Road store could be turned into four separate tenancies and Mr Keys said the arcade might be rejigged.”

In examining the mix of retailers, Mr Keys said one option was to aim for the leading edge, another idea is to go for a young persons market, or it could stay with the mainstream.

The expansion of 277 and the future threat of a 45,000m² Westfield centre, both at the other end of the Broadway strip, could be daunting, but Mr Keys understands the first (small) stage of the 277 expansion and redevelopment is fully leased, while the second stage there and any Westfield development are 2-3 years away.

As well as the time factor, he said some retailers were considering a two-shop Newmarket.

Country Road’s lease was at market, with an upper constraint that took it slightly below market. “By cutting the space up, we might do better than that,” Mr Keys said.

Village Rialto Cinemas recently renewed its lease on the five cinemas. Above the Rialto complex, the Grant Thornton Centre (formerly the Westpac office tower, also known as On Broadway) is fully leased, with accountancy firm Grant Thornton also taking naming rights.

Four AA floors empty but tenants in sight

The AA Centre on the corner of Albert & Victoria Sts is the building the Newmarket trust ended up with after its merger with the National Property Trust was torpedoed. It has lost law firm Davenports from one level and Linz (the Government’s Land Information NZ) from three, but Mr Keys said market response had been good.

He said two corporates had the AA Centre on their shortlists, both for three floors, and there were other potential corporate tenants around. “Vacancy rates are dropping quite quickly. The Auckland Club tower vacated by Bell Gully was virtually 100% vacant 8-10 months ago, and it’s now 84% leased. We’re not having parties and dances about it, but the vacancy rate’s definitely on the improve.

“We seem to be competing with buildings like the Auckland Club, Shortland Centre I & II, AmTrust Pacific (ex-Price Waterhouse).”

With the Royal SunAlliance Centre and AMP’s PricewaterhouseCoopers Tower (under construction) as Auckland’s two premium buildings, and the ASB Centre and ANZ Centre as the city’s A grade offerings, Mr Keys said the AA Centre was probably B grade but was running close to the ASB Centre in lease terms.

For its vacant spaces, “we’re talking a face $230/m² gross, which is about $170/m² net, and we’re talking an effective rent quite a bit lower than that with incentives.”

The incentives picture is mixed — some tenants want a rent discount, others a fitout, others just want the effective rent. “The rents we’re pitching put us in a very competitive position — that’s the way the property’s valued, by CB Richard Ellis. Maybe that valuation is a bit lower or more realistic than others in the market.”

Bank reviewing its options

On the corporate question, Mr Keys said the Commonwealth Bank was reviewing its options. The Australian bank owns ASB Ltd, which in turn swallowed up Sovereign Insurance, which controls management of the Newmarket Property Trust.

On another control string, when Commonwealth took control of Colonial First State in Australia it also took control of the management of Colonial First State Property Trust in New Zealand.

Commonwealth has dome some shuffling of Colonial’s and its own business, with more likely, but the question of what it might do about its relatively small New Zealand listed property trusts has not been answered yet. Colonial and Newmarket could be forged into a good generalist portfolio with a combination of industrial, retail, and a spread of office stock from the suburbs to city fringe to central business district.

Offer to unitholders now 19 June

National Property Trust has set back by another week its indicative timetable for the takeover offer for Newmarket Property Trust.

National changed the original anticipated timetable on Monday 20 May and again on Friday 24 May.

Actual timing will depend on whether the Securities Commission grants National an exemption from issuing a prospectus.

Subject to that, National said on Friday it wants to deliver its notice of takeover intention to Newmarket on Tuesday 4 June, send its offer to unitholders on Wednesday 19 June and close the offer on Friday 19 July.

National’s 6-for-10 bid prices Newmarket at 57c/unit.

Original story: National bids for Newmarket trust again